When RadioShack warned last month its second-quarter sales were sluggish, the news did not surprise many. Sure, RadioShack’s stock price fell 20 percent, but double-digit losses have become routine. But when the company blamed a $50 million anticipated sales shortfall on wireless handset and personal computer sales, wireless investors took notice.
The following day, Sprint PCS’ stock lost nearly $1.50 per share with more than 10 million shares trading hands, well above its average daily trading volume of 6 million shares. The news hit Sprint hard because of its continued reliance on RadioShack for sales of its products and services. Many analysts estimate nearly 25 percent of all Sprint PCS accounts activated this year were sold through RadioShack outlets.
Verizon Wireless recently announced an agreement with RadioShack to sell handsets and services through a “store-within-a-store” inside a number of RadioShack locations nationwide.
Despite its projected sales shortfall, RadioShack said it maintained its 9-percent share of the handset market.
“While perhaps most directly related to Sprint PCS and Verizon, for which RadioShack represents an indirect distribution channel, stocks in the entire sector seemed to be impacted,” said Deutsche Banc Alex. Brown.
In addition to slower-than-anticipated floor traffic, RadioShack blame for the sales shortfall on a variety of wireless issues, including Verizon Wireless’ lack of focus on the sales channel; the ongoing transition from analog to digital handsets, placing pressure on RadioShack’s margins; pricing intensifying industrywide; and more customers purchasing prepaid services through the store.
“In terms of implications to the broader industry, we believe that it is shortsighted to draw conclusions about a general slowdown in the industry based solely on two months of data from RadioShack,” said Goldman Sachs in a research note. “We still believe that the U.S. will add 25 million subscribers during 2001, or an incremental penetration rate of 8.5 percent, for an ending penetration rate of 47.6 percent.”
While both carriers derive an important portion of their sales from RadioShack outlets, they expressed little concern about the news.
“We’re still excited about our relationship with RadioShack,” said Brenda Raney, spokeswoman for Verizon Wireless. “Our stores-within-a-store have only been in place since May, so the news has not had a big impact on us. Everything is still on track.”
Sprint PCS had no comment.
“RadioShack represents 25 percent of Sprint PCS’ total unit sales on a quarterly basis,” said Tim O’Neil, wireless analyst with Wit SoundView. “Sprint is shifting away from this reliance by focusing on company owned and operated retail outlets and a recently announced agreement with the nations largest master agent-[Brightpoint]. However, at this point RadioShack is a good barometer into Sprint PCS’ quarter.”
Last week, RadioShack released May sales figures in-line with its earlier estimates and noted wireless promotions throughout the month prompted an upward trend in subscriber activations. While total store sales were flat compared with last May, wireless sales were up, which the company attributed to the recent Verizon Wireless launch. RadioShack said it expected the upward trend to continue into June due to continued marketing efforts and enhanced merchandising visibility.
“Trends have very recently become more encouraging for wireless,” said James Grant, senior director of investor relations at RadioShack, following the May sales report.
